AAA Model for Regional Effectiveness
Explain The AAA model.
The theory relating to Adaptation, Aggregation and Arbitrage otherwise known as AAA creates generic approaches in relation to value creations of companies (Morschett, Klein & Zentes 2015 p. 45). The strategy relating to adaptation focuses on increase in revenue and the company’s market share through changing the market components of the organization’s business model to satisfy local preferences. Aggregation on the other hand focuses on gaining economies of scale through creation of global and regional effectiveness and efficiencies. It entails standardization of significant parts of the proposition value and combining production and development aspects of the company. The final strategy of Arbitrage encompasses exploitation of economic differences of the regional, national, and global markets through positioning the different sectors of supply chains in separate locations. Several industries have adopted this theories in their businesses, for example for the computer industry Lenovo and Samsung and
Lenovo provide many facilities and services in the manufacture of their products. Lenovo has been trying to modify its products in relation to time and the needs of the customers. During the first manufacturing process, Lenovo provided 16 GB hard disks with a RAM of 256. At that time, those specifications were enough. At present, Lenovo has been selling laptops that have hard disks up to two TB and RAM up to 16 GB. In addition to Lenovo’s adaptation theory, the company used to sell laptops and few tablets only and this led to a great success in the sale of Lenovo laptops. The laptops provide high quality at less cost compared to the other companies and it satisfies user requirements. The provision of great design and professional look for the user is an important aspect in the adaptation theory. Innovation has been the focus for Lenovo and a good example is the detachable laptops that can be of use for both laptops and tablets. Lenovo’s venture into the mobile phone industry also shows how they produce their products in relation to time and customer requirements.
The strategy of aggregation can be explained for Lenovo through the company’s exploitation of both developing and already developed markets globally. About the already developed markets, the company focuses on strategies to sustain itself in the developed market. On the other hand, for emerging markets, Lenovo focuses on establishment and promotion of its products through marketing and innovation. In the current time, Lenovo’s competition is the dell, Samsung, and hp among others. The company needs to continue developing strategies to sustain itself in the ever competitive and dynamic computer and technology market. The company does this through the production of reliable and efficient products with features that are high quality at relatively low prices. Globally Lenovo has risen and has ranked itself on top of hp, Samsung, and Dell among others in the laptop and computer industry.
Lenovo has applied the Arbitrage strategy through outsourcing some services and products from other parties. A good example is an operating system used for Lenovo laptops and mobile phones. Lenovo outsources its operating system from Microsoft and Linux, and this improves the customer experience in the use of their products. A good example for Lenovo is in the Indian market, where Lenovo is the contract agreement with ReasonNet. ReasonNet provides many IT services in India that are top notch, but Lenovo produces the hardware components. There is a campaign held by Lenovo called “Here there and everywhere,” this campaign has created a perfect offshore marketing source for Lenovo. In summary, the best way of employing Arbitrage is through outsourcing as Lenovo has used it in their business strategies of ensuring sustainability and growth of the company.
Samsung has been once ordered to pay $1.05 billion for violations of patents for the Apple Company. Samsung has focused on applying the adaptation strategy based off better, faster and cheaper. As for now, Samsung might lack the innovation aspect in the market but in the process of playing catch up no one can top Samsung Electronics. However, in the Asian market especially South Korea, Samsung is the most recognized brand and is the key to the transformation of the country’s economy. The company’s strategy was to create products that are faster and better than the other companies but at a lower cost. Samsung does not only make the hardware, but it also makes it components to suite the customers’ needs. Samsung mainly focuses on the smartphones sector and the adaptation strategy has worked well in the production of the mobile phones. Its adaptation has even led to Apple declaring war that resulted in the payment of the $1.05 billion. Besides, the company has focused on localization of its products in the extensive global market. Through venturing into the laptop industry to supplement other electronics products manufactured by the company, the company has integrated the adaptation strategy very well in its business to ensure its growth.
Samsung has applied the aggregation strategy through the process of regional strategy archetypes. Some types of the strategies employed by Samsung include regional focus, regional networks, and local platforms among others. For the aggregation strategy, Samsung has based it on home focus just as many companies do. The ability of Samsung to focus regionally over a long time since its establishment shows its aggregative nature in the technology industry (Yoon 2011 p.12). The company markets and sells its products and services worldwide but is centralized in South Korea. Centralization allows the company to take advantage of the regional economies of scale. Samsung has been able to use this strategy because of the high profitability of the home market, availability of in-depth local knowledge, and availability of free trade arrangements in the region.
Samsung has employed the arbitrage strategy in its business activities through the process of outsourcing especially in the acquisition of the operating system used. The operating systems used in Samsung laptops or tablets can be Windows, Linux, or Android. Provision of proper and greater experiences for the customer through their Arbitrage strategy creates a way that the company can maintain sustainability and growth in the market. In China, for example, competition has intensified between Apple and Samsung, but Samsung still holds ground. Just like Lenovo, Samsung has used outsourcing as the primary strategy for arbitration.
For Walmart stores, there has been increased campaigns to take the company globally. However, the company is applying the adaptation strategy through the acquisition of the local supplies of the stores. Walmart has been using a robust and rigorous methods to ensure the process of customization in their retail stores do not undermine the local and traditional efficiency. The real estate department of the company has been in broad research methods in the analysis the local customer base while they are looking for new locations. Templates are then created to ensure that the company maintains economies of scale that are considerable. With the direct link program, Walmart has been able to coordinate with the suppliers locally to ensure the store,’s merchandise is acquired and stored efficiently and more. By using retail link portal through the web, there is an assurance of creation of maps of local demand for consumers that would help both the suppliers and Walmart. These plans to aid in indicating the local stores that need to be stocked at particular times. A good example is canned chili, which is stocked in the stores based on local tastes. Canned chili is an excellent illustration of how Walmart has used the adaptation strategy to suit the local requirements and preferences.
Becoming a global giant does not solely depends on of the grand design but also the use of the right opportunist approach. Walmart stores are at present the largest retail store in the world and operates in more than ten countries. Walmart, however, operates under different names in the countries to enable proper competition with its competitors. The company has been using the multinational approach because it wants to determine the treatment levels of its customers in the different countries. This concept has helped in ensuring almost all of its customers including the local ones are served. The multinational approach has helped Walmart to grow and expand globally. However, globalization of Walmart does not come easily since it requires a lot of marketing and advertisements to ensure that it can serve all the citizens of the country, which the stores are located. Walmart has continued to pursue the global markets in an aggressive nature since its first expansion in the year 1991. Companies need globalization only after they have established a good local market share as in the case of Walmart stores (Asmussen 2011 p. 48).
Walmart has applied the Arbitrage strategy in their business through the sale of products worldwide. Some of these commodities are however not of their production as some of the products are bought from China and other countries and Walmart earns through the differences in the process of the items. This is somewhat a form of outsourcing as it has been seen that it is an important way of achieving arbitrage for most companies. Because Walmart is a large retail store, it takes advantage of buying different products from different countries and selling them in their stores and benefit from the small profits as the prices are not the same.
Tesco has tried to increase its market share and revenue through the maximization of local dependence on its products. Tesco has done this through ensuring it satisfies all local customers. Being the largest retail store and chain in the United Kingdom and the second largest in profits with Walmart only beating it, Tesco has continued to provide its local consumers with efficient retail experiences. Through the Tesco Personal Finance, Tesco Telecom, and Tesco. Com, the company, ensures that the customers including the local ones are catered for in the best way possible. Localization of its products based on the international markets in which they are located enabled Tesco to adapt and grow to greater heights over the years. A good example of how Tesco has been able to adjust to the local markets is the time the company formed a joint venture with Samsung, a local well-established retail company in South Korea. The joint venture ensured that Tesco was able to penetrate South Korea’s domestic market through the acquisition of knowledge and the best stores. With Samsung already establishing its market share in the South Korean retail market, Tesco had a smooth process in penetrating the local market. Tesco was able to localize all its stores basing on the South Korean customers’ preferences, and this enables it to bring some of its best products and services in the country. The aspect of adaptability and localization enabled the company to grow rapidly in the country even becoming the second largest retail chain in the country (Day & Masciulli 2012 p. 89).
Tesco at first had difficulties in its globalization strategy but was able to enter the global retailing markets in the mid-1990 and has been on rapid and aggressive expansion since then. Tesco has been able to use the aspect of flexibility in its globalization process, as it believes that each market is unique and needs different approaches in venturing into the markets. Tesco was able to maintain its focus as globalization can even take decades. Tesco had the belief that building an international portfolio for its stores would take ten years and another ten years to develop a strong brand. Also, Tesco was able to employ multiple formats in its globalization strategy as it had learned from its local markets in the United Kingdom that various formats are needed in the penetration of markets. This is the main reason that led the company to build a wide range and different formats of retail facilities such as hypermarkets and convenience stores. Finally, to achieve its globalization Tesco focused on building brands, as the brands will create the base and foundation for a strong and lasting commitment to the customers (Ghemawat 2013 p. 113).
Tesco has been able to apply Arbitrage in its business process through focusing on the differentiation strategy. The company concentrated on this strategy since most of its competitors focused on low prices strategy. Through innovation which is important for Tesco through bringing new value to its customers and provide a good definition for the relationships between the company and its customer.
In conclusion, all industries have at one time employed one or all of the aspects of the AAA strategy in their business functions. These strategies are important for every business as the strategy relating to adaptation focuses on an increase in revenue and the company’s market share through changing the market components of the organization’s business model to satisfy local preferences (Grant 2016 p. 78). Aggregation, on the other hand, focuses on gaining economies of scale through a creation of global and regional effectiveness and efficiencies. It entails standardization of significant parts of the proposition value and combining production and development aspects of the company (Gooderham, Grøogaard & Nordhaug 2013 p. 32). The final strategy of Arbitrage encompasses exploitation of economic differences of the regional, national, and global markets through positioning the different sectors of supply chains in separate locations. In summary, localization and globalization of the company are both achieved by using the AAA strategy.
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